MAIN PAGE | EVENTS & PROGRAMS | 2002 | IGM | AVAILABLE SPEECHES | ZHANG YANLING
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2002 | IGM | AVAILABLE SPEECHES | ZHANG YANLING
Striving for Growth
in a Challenging Environment PBEC 35th International General Meeting
Kuala Lumpur, Malaysia May 3-7, 2002 Zhang Yanling Honorable Chairman, Ladies and Gentlemen, Good morning. Today I am pleased to take this opportunity to discuss the challenges and opportunities facing the Asia-Pacific region. Globalization has been a hot topic in the last decade. Everyone present at today's conference may have your own view on this topic. Globalization in financial sector, an integral part of globalization, has made the world financial markets and financial institutions integrated more closely than ever. Globalization enhances the development and openness of Asia; from another perspective, it is also a double-edged sword, as revealed by the Asian Financial Crisis. Risks are growing along with the optimized allocation of resources. The prevention of risks can only be achieved through self-development and improvement. In this sense, the financial reform in Asia is far from completion though the Financial Crisis is already behind us. Asian countries are now committed to the reform and restructuring of the financial systems, which has yielded marked results. I would like to, at today's meeting, exchange views with you on the issue of Asian financial reform. I. Progress in the Asian financial reform after the Asian Financial Crisis The Asian Financial Crisis broke out from Thailand in 1997 and soon spread to Malaysia, Indonesia, the Philippines, Korea and some other countries and regions. China to some degree, has also been affected. Compared with other industries, financial industry in Asia has been most seriously hit in the Crisis. Before the Crisis, the financial systems of the Asian countries were on the fast track of development. In the aftermath of the crisis, the banking system and financial markets of many Asian countries suffered terribly with the NPL reaching an unprecedented level. However, the speed at which the affected countries recovered from the Crisis was also beyond many people's expectation. With concerted efforts from governments, banking institutions and international financial organizations, economic growth has been restored in Asian countries since 1999. The momentum has been maintained for about two years. In 2000, the emerging Asian economies enjoyed an average GDP growth rate of 6.7%, higher than the world average level of 4.8%. Affected by the slow-down of world economic development and impact of the Sept.11 incident, the average GDP growth rate of the emerging Asian economies still reached 3.7% in year 2001. Amongst these countries, China reaped an outstanding growth rate of 7.3%. According to the "Asia Development Outlook 2002" recently released by the Asian Development Bank, the average GDP growth rate of the Asian Pacific region is predicted to reach?.?? in 2002 and ?.?? in 2003. The above is an indication that Asian economy will rebound to sustainable development in the next two years after the economic fluctuations from 1997 to 2001. The economic recovery, to a large extent, can be attributed to a series of measures for reform and restructuring in financial system adopted by the Asian countries after the Crisis. In the under-developed financial markets in Asia, indirect financing still takes up a dominant position, therefore the reform and restructuring measures so far taken mostly focus on the banking sector. Many countries have defined their objectives for financial reforms. However, as the countries differ in the level of economic development, financial structure, government preference and cultural background, the concrete strategic goals varied from one country to another. Since the restructuring in banking industry involves a lot of sectors and has a great impact on economic and social development, much efforts have been made in facilitating the restructuring of banking industry. The measures taken in financial reforms mainly include the follows: 1. Proper institutional arrangement. Many countries have set up institutions specialized in bank restructuring and the disposal of non-performing assets; 2. In order to promote the banking reforms, these countries began to take measures in modifying banking laws, lifting restriction on the inflow of foreign capital and raising capital ratio; 3. The restructuring and merger in the banking sector were implemented under the support from the government. In China, four asset management corporations were established to dispose the non-performing assets from four state-owned commercial banks. In the meantime, China has carried out reforms in streamlining the financial system, especially the trust companies. Subsequently, systemic risks in financial sector have been substantially reduced. Prominent results have been gained through the restructuring and reform of the banking sector in various countries. The capital ratio, financial positions, profitability and risk management ability of the Asian banks have also been improved. II. Follow-up reforms should focus on resolving deep-rooted problems in the development of financial industry in Asia From my perspective, though achievements were made in the reform of the financial sector in Asia, what should be done in the reform in the future would be more challenging. As the reform will gradually descend from macro to micro levels, improvement should be made in governance structure, risk management ability and efficiency in capital utilization for commercial banks through fundamental and institutional reforms. Specifically, the reform may cover the following aspects: 1. To establish good corporate governance and bring the Asian financial sector in the direction of market-oriented development. To build good corporate governance in financial sector of the developing countries in Asia is a gradual process, which should be integrated into the development of a country's ownership structure, capital market and professional human resources market. We might as well start from building up internal corporate governance and migrate towards the corporate governance based on external supervision in a phased and systematic approach. (From the year 2000, to build good corporate governance has become the focal point for Bank of China's reform. The reform mainly includes: 1. To further clarify the development strategy of Bank of China; 2. To establish a scientific decision-making mechanism so as to enhance the ability to prevent and control financial risks; 3. To enhance the transparency of the financial information according to prudent accounting principle; 4. To set up a rigid target-responsibility system and the corresponding bonus system that is geared towards rewarding strong performers; 5. To reinforce the human resource management and staff training; 6. To build a healthy, independent and responsible board of directors and board of supervisors. Up to now, the reform has yielded positive results.) 2. To establish an internal management system with the risk management as the core. Risk allocation is the basic function of financial system while risk management acts as the guarantee for the financial enterprises to gain financial profits. Asian banks have come to realize the importance of risk management and begin to actively improve their risk management system. From my perspective, a basic database should be established; secondly, the internal rating model should be built using quantitative tools; in addition, more attention should be paid to designing a scientific and rational process of risk management. Bank of China has, in the past years, carried out several reforms and explorations in establishing a scientific decision-making mechanism for credit extension which incorporates with independent due-diligence investigation, collective risk assessment mechanism, responsibility and approval system of authorization and comprehensive post-evaluation system. The bank has thus extended the coverage of risk management and a consistent and centralized risk management system for the entire bank. In the meantime, the internal risk measurement and management models will be set up based on VAR and RAROC models. 3. To make more efficient use of the funds. Commercial banks and government should cooperate closely in line with business principles in developing national bond market. As a result, capital in savings account can be transformed into fiscal capital through purchasing state- issued bonds by banks , institutional investors and individuals. Economic growth will also be obtained through strengthening the investment in infrastructure so as to stimulate the demand for public investment. The relatively lagging infrastructure construction in many Asian countries has posed negative impact on the development of private investment. Commercial banks can play their due roles in portfolio management and collaborating with governments in public investment. At the same time, they can provide better assistance to governments in collection of relevant information, selection of public investment projects and formulation of investment plans so as to bring about the economic and social benefits, make better use of funds and reduce credit risks, etc. 4. To strengthen cooperation in economic, trade and financial sector among Asian countries. The economies in Asia-Pacific region are substantially complementary. Different countries, industries or enterprises at different levels can realize efficient allocation of capital in this region based on cost reduction principle. Asia-Pacific countries should at current stage, make active efforts in promoting all-rounded cooperation, especially the exchange and cooperation at different levels of the financial sector. This is in line with the requirement of the development of the Asian financial market and acts as basis for other forms of cooperation and fundamental driving force for Asia's sustainable economic development. Thank you! |
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